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Tail wagging the dog

The 30-day correlation between the daily return of the S&P 500 index and the average daily return of the FAANG stocks (Facebook, Amazon, Apple, Netflix and Google) was about 0.93 as of midday Monday. The correlation between the two increased sharply amid early February's market shock remained high into March. Current correlations are the highest seen since the start of 2017; the correlation between the two averaged about 0.6 during 2017 including a brief period near 0.90 toward the end of the third quarter.

Correlations tend to increase in market downturns. News of a data breach at Facebook sent shares of the social network company down about 6.9% Monday, spooking investors over how greater regulatory scrutiny would affect the data-dependent group. The five stocks were down an average 3.6% as of Monday afternoon.

The collection of equities makes up about an eighth of the total market cap of the broader index.